How JB Hi-Fi is keeping Amazon at bay

Consumer electronics specialist JB Hi-Fi, said by analysts to be vulnerable to Amazon’s assault on Australian retailing, posted another record result today.

Revenue rose 21.8% to $6.85 billion and the JB Hi-Fi Australia business reported comparable sales growth of 6.2%, a standout in a weak retail environment.

Net profit after tax jumped 12.3% to $233.2 million.

Industry research group IBISWorld believes JB Hi-Fi has effectively leveraged its economies of scale to lower its prices while also increasing its profit margins.

“As new products, click and collect, and online order fulfilments have increased JB Hi-Fi’s sales volumes, the company has concentrated on controlling its operating costs,” says Senior Industry Analyst Kim Do.

“This has remained a competitive advantage for the company. The company has continued to invest in its online platform while expanding and improving its delivery options to combat the potential threat of Amazon Australia.”

Australian consumers have become increasingly value conscious, with pure-play online-only operators such as Amazon and Kogan.com offering lower prices for a big range of products.

While JB Hi-Fi has increased its Australian online sales by 32.1% over the year, to reflect 4.6% of total sales, the ongoing expansion of Amazon will put pressure on it over the next five years.

Amazon Australia has reported a loss of $8.9 million after tax, and revenue of $17.4 million over the year to December 2017. However, the company only launched in December and only generated revenue in that month.

“Amazon is in the market for the long haul and they’re likely willing to take losses for numerous years to make it work in Australia.”

According to IBISWorld, JB Hi-Fi cannot afford to adopt the same approach as Amazon. Investors and shareholders are watching the company closely and any slight underperformance could severely hurt the company’s earnings.

The Online Consumer Electronic Sales industry’s revenue is expected to grow at 12.2% each year over the five years through 2017-18 to reach $2.7 billion.

This double-digit growth is expected to continue over the next five years, suggesting that companies such as JB Hi-Fi and Amazon will have plenty of room to expand.

“While major player Kogan has increased its market share considerably over the past five years, traditional retailers, such as JB Hi-Fi and Harvey Norman along with new player Amazon, still account for only a small portion of industry revenue,” says Do.

JB Hi-Fi’s annual results are a window into the company’s strategy.

The company believes a continued roll-out of stores with a pipeline of new properties which will continue to deliver in excess of their cost of capital.

JB Hi-Fi is also focused on growing gross profit dollars and maintaining gross margin, but not at the expense of sales.

The digital offering also is a priority with continued development of websites, and expansion of the online product range, to drive growth in sales.